America's Service Economy

June 27, 1986

Report Outline
Service Sector Growth
Employment Implications
U.S. Competitiveness
Special Focus

Service Sector Growth

As America heads into its fourth year of recovery from the worst recession since the 1930s, there is much good news for consumers. Several trends have brought about an emerging consensus among economists that economic conditions are better than they have been for a decade or more and that they can be expected to continue at least through 1987. The oil price decline brought about a fall in the consumer price index to 3.8 percent last year, the lowest level since 1967. Interest rates have also slid, reducing the cost of credit and bringing home ownership once again within the reach of many Americans. The fall in interest rates also promises to make the dollar less attractive to overseas investors, easing the upward pressure on the currency's exchange value. The weaker dollar—which has depreciated by 27 percent from its peak value in February 1985—makes U.S. products less expensive to foreign consumers and thus should improve their competitiveness on world markets.

But there is a dark side to the recovery. It has passed by large parts of the country where oil and farming are prominent. Civilian unemployment, at 7.3 percent, remains at its highest level ever so far into a recovery. America's trade balance, for all the encouraging news on the dollar, registered a $148.5 billion deficit in 1985 and is not expected this year to improve much, if at all. For the first time since World War I, the value of foreign assets in the United States has since mid-1985 exceeded that of U.S. assets abroad, bringing the country the dubious honor of having nudged out Brazil as the world's biggest debtor nation.

To explain these contradictions, economists point increasingly to a fundamental shift in the American economy away from the manufacture of goods to the provision of services. Some observers place the emergence of a service-based economy on a par with the industrial revolution, which by World War I had transferred the bulk of American labor from the farms to the factories. The United States, free of warfare at home and significant competition from abroad, emerged as the world's leading industrial power. Its economic well-being depended on the basic goods-producing industries—mining, construction and manufacturing—in addition to agriculture.

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